When the federal budget came out earlier this year and the First Time Home Buyer Incentive (FTHBI) was announced, “I thought what a piece of garbage – that’s not going to help anybody!” Now that September second is here, I have had the FTHBI at the back of my mind while I am working on client’s mortgage applications, and I think I am changing my tune a little bit?
It appears that the FTHBI may assist a small number of individuals who would not have qualified in the past and now they are qualifying for a mortgage – or giving them a bit more buying power. It’s not as easy to qualify for a mortgage as it was prior to fed’s implementing the benchmark rate (when Canadian’s need to qualify for a mortgage two percent higher than what they are paying or the benchmark rate – whichever is greater) but it’s a small step in the right direction. And by small step, I mean baby step.
I attended a learning opportunity on the FTHBI last week, as there has been very little published on how Canadians actually qualify for this program. Turns out you have to go to the National Housing Strategy website and fill out the application, sign it, and sent it to your mortgage professional. We have to do some things on our end, as your broker, as does the mortgage lender – but overall it does not seem to be overly difficult to apply. Maybe, still, a bit taxing for consumers to understand.
This follows suit with this government, as the last several changes to mortgage rules have made it extremely confusing, to both mortgage professionals and consumers. I guess I should say thank you to the feds for giving me a bit more job security? There are still a lot of unknowns that will have to fall out in the wash on the FTHBI but again it’s a start.
Probably the biggest unknown is whether they are going to allow the FTHBI to work in conjunction with the spousal buyout program? The rules say that if you have gone thru a divorce, despite owning a home in the past four years you still qualify for the FTHBI (providing you meet the other qualifying criteria). In addition, you are allowed to piggyback mortgage insurer programs with the FTHBI. Therefore, I am inclined to say you can do a spousal buyout and use the FTHBI as part of your down payment.
But . . . there is also some wording that says down payment must come from savings, RRSPs, or gift . . . the missing word here that I would like to see is EQUITY. When you are taking over the matrimonial home from your ex your down payment is equity, not the three listed in the FTHBI.
I have submitted my first mortgage application combing the FTHBI with equity as down payment and we will see how this throws down? It’s the grey area that is not addressed. I’m not one to not challenge rules, so I’m happy to be one of the broker’s who has a challenging application submitted to the lender for approval, ready to argue for my client on Tuesday morning, if required.
Despite the fact that the FTHBI may be helping some people qualify, there are some things that consumers need to consider once they are into the program. It’s likely best to explain this via an example. Molly buys a “new to her home” using the FTHBI and her purchase price is 400,000. Therefore, her FTHBI is $20,000 which comes in the form of an interest-free loan (in addition to her $20,000 in savings). This loan is registered to her title in second position. The FTHBI needs to be paid back on sale or prior to 25 years, whichever comes first.
Let’s assume Molly wants to sell her home in ten years and she sells for $480,000. This means she will payback five percent which is now $24,000 (($480,000 – $400,000) x 5% = $4000 plus the original $20,000). However, if she sells in a depressed market and she sells for $331,040 she only pays back $16,552 (($331,040 – $400,000) x 5% = -$3,448. $20,000-$3448 = $16,552) So, despite the feds calling it “interest-free” – it’s not technically “free” as they get their share of your market increase if the economy goes in the right direction.
In addition, you will see increased legal costs for both your purchase and your sale, as an extra lien will need to be registered and discharged. The FTHBI will also limit your access to a home equity line of credit as it is unlikely that a lender will be interested in registering their security in third position.
Overall, I am interested to see how much this helps Canadians? I anticipate it’s likely to help lower-income, lower price point buyers outside of Toronto and Vancouver . . . so I’ll keep it as a tool in my mortgage broker toolbox and hope I can use it to my client’s advantage.
I am a Collaborative Divorce Alberta Association professional that works with people through the association is helping find collaborative ways to separate and divorce.
Not all separations are “nasty” and sometimes people find that they need to go their own ways from each other. Through the collaborative divorce process there are professionals that have the same goal as you. They want to help you and your spouse reach a fair divorce settlement, based on your priorities and without the potentially huge expenses and stress associated with a settlement reached in court.
In the process of separation and divorce I work with families and their finances to keep family homes through spousal buyout and/or find mortgages that suit them in their new homes. We work together to find what is the best options for everyone.
It’s imperative to examine your finances to determine if you can comfortably afford to buy out your spouse. If you’ve decided to remain in your matrimonial home, but the mortgage payments, taxes, monthly bills and upkeep push you to your financial limit, the stress that this will put you under may not be worth staying put – even for the sake of keeping something constant in your children’s lives.
As a mortgage specialist who works with divorcing couples, I’ve adopted three key priorities to ensure I serve every client to the best of my ability, including:
Please contact me if you have any questions and I also encourage you to check out Collaborative Divorce Alberta Association for further resources.
Krista is presenting at the Alternate Dispute Resolution Luncheon Tuesday February 19th in Edmonton.
It should come as no surprise that money woes can be the cause of marital and family stress; unemployment or poor spending habits can exacerbate the situation. One can easily conclude that
this reality extends well beyond just the family unit.
The FOAJ & ADRIA are pleased to present two speakers this month that will offer their experience, insights and resources to better understand the money & conflict dynamic. What skills or resources might be available to you when assisting families though these difficult conversations or decisions?
As a mortgage broker, Krista Lindstrom has focused her own practice on families facing separation and divorce, and walking her clients through the complexities of restructuring mortgages and finances to retain the marital home, often with the bets interest of their children in mind.Knowing that life isn’t always easy, particularly at the end of a relationship, Krista has dedicated herself to
helping people navigate all possible mortgage options when facing separation and divorce. Krista believes that Knowledge is Power, and will share her personal experiences in dealing with families in conflict. Attendees will gain insights into approaches, tools and resources that would be useful in their
Second presenter is Manraj Waraich, from the Credit Counselling Society, a non-profit service helping individuals and families find their best options to deal with their debt and get their finances back on track. Manraj will present Financial First aid for Mediation Professional, assisting us all to learn how financial stress impacts our clients, to recognize the signs of financial stress, and to know what strategies and resources might be available to assist them.
Tuesday, February 19
11:30 AM to 1:00 PM
Buffet Royale West
17202 95 Ave NW
Money & Conflict
$25 for members & $35 non-members